The short answer: for the same index, an ETF usually has the lowest yearly cost, an index fund is a close second and far more convenient, and an active mutual fund costs the most. It only beats the other two if the manager outperforms by more than the extra fees. The biggest avoidable cost of all is buying the Regular plan of a fund instead of the Direct plan.
Use our ETF vs index fund cost calculator to see the rupee difference for your own SIP.
How the Three Differ
| Index ETF | Index fund | Active mutual fund | |
|---|---|---|---|
| What it does | Copies an index | Copies an index | Manager picks stocks to beat an index |
| Where you buy | Stock exchange, through a broker | AMC or mutual fund platform | AMC or mutual fund platform |
| Price | Market price, changes all day | Day's NAV | Day's NAV |
| Demat account | Needed | Not needed | Not needed |
| Automatic SIP | Only through some brokers | Yes | Yes |
| Yearly expense ratio | Lowest | Low | Highest |
| Other costs | Brokerage, bid-ask spread, demat charges | None | None |
What It Actually Costs: The Evidence
1. ETF vs index fund on the same index
Nippon India ETF Nifty 50 BeES (NIFTYBEES) and UTI Nifty 50 Index Fund (Direct) both track the Nifty 50. Using AMFI NAVs to 28 September 2026, the ETF's NAV grew about 0.15–0.19 percentage points a year faster over one, three and five years. That is mostly the difference in expense ratio: large Nifty 50 ETFs charge 0.03–0.05% a year.
That edge is measured before the ETF's own trading costs. On a ₹10,000 monthly SIP over 15 years at 12%, 0.18 points a year is worth about ₹72,000, far more than a ₹20-per-order brokerage on 180 orders (₹3,600). On a ₹1,000 SIP the edge is only about ₹7,000, and that same brokerage eats half of it.
2. Direct vs Regular: the cost most people don't see
A Regular plan pays a commission to the distributor out of your returns. Same fund, same stocks, different plan:
| Fund | Direct beats Regular by (5 years) | (10 years) |
|---|---|---|
| UTI Nifty 50 Index Fund | 0.12 points a year | 0.10 points a year |
| HDFC Large Cap Fund | 0.65 | 0.69 |
| ICICI Prudential Large Cap Fund | 0.63 | 0.76 |
| Parag Parikh Flexi Cap Fund | 0.86 | 0.89 |
Annualised returns of the Growth options, calculated from AMFI NAVs to 28 September 2026.
For an index fund the Regular-plan penalty is small, around 0.1 points. For active funds it is 0.6–0.9 points a year, every year. Over 15 years on a ₹10,000 monthly SIP at 12%, 0.75 points a year costs close to ₹3 lakh.
3. Active funds: the hurdle
Direct plans of active large-cap funds charged about 0.63–1.04% a year in September 2026, against 0.03–0.05% for large Nifty 50 ETFs. So an active large-cap fund must beat its index by roughly 0.6–1 percentage point a year before costs just to match the ETF. Some do over some periods; many don't, and you can't tell in advance which will.
The ETF's Hidden Costs
- Brokerage: many brokers charge nothing on delivery trades, some charge a flat fee per order. Check yours.
- Bid-ask spread: you buy slightly above and sell slightly below the fair price. Tiny for big, heavily traded ETFs; noticeable for small ones.
- Price vs NAV: a thinly traded ETF can trade at a premium or discount to its real value.
- Demat charges: a small charge from your depository participant each time you sell.
- Discipline: without an automatic SIP, it is easier to skip months.
How They Are Taxed
Equity ETFs, equity index funds and equity mutual funds are taxed the same way: gains within 12 months are taxed at 20%, and gains after 12 months at 12.5% above ₹1.25 lakh a year. So tax doesn't change which is cheaper. Gold, silver, debt and international funds follow different rules; see our gold ETF guide for those.
Which Should You Choose?
- An index ETF if you have a demat account, pay little or no brokerage, and invest larger amounts or lump sums in a heavily traded ETF.
- An index fund (Direct) if you want automatic monthly SIPs, no demat account, and nearly the same low cost. For most people starting out, this is the simplest choice.
- An active fund (Direct) only if you have a specific reason to expect it to beat the index by more than its extra fee, and you're prepared to review that every year.
- Avoid Regular plans unless you are knowingly paying for a distributor's advice.
For picking an index fund once you've decided, see how to choose an index fund and our Nifty 50 index fund comparison.
For NRIs
NRIs can buy Indian ETFs through an NRE/NRO-linked demat account and mutual funds directly from most AMCs. US residents should know that the IRS generally treats Indian ETFs and mutual funds as PFICs, which changes the maths entirely; read our PFIC guide first.
This article explains how the products work and what they cost. It is not a recommendation to buy any specific fund.